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Identifying Ideas For A Low-Growth, Low-Rate Environment

Summary Our strategy looks across asset classes, currencies, geographies and sectors to identify good long-term ideas wherever they may be. This piece highlights five themes that we believe will likely prevail over the next two to three years. In the shorter-term, we believe that 2016 could potentially bring with it some significant changes across financial markets. 2016 investment outlook: Multi-asset strategies By David Millar, Head of Multi Asset, Invesco Perpetual Divergence in economic growth and monetary policy around the world has led to an increasingly volatile market environment in 2015. Specifically, while the United States (U.S.) and the United Kingdom (U.K.) have been preparing to raise interest rates from rock-bottom levels, Europe and Japan have continued to employ quantitative easing measures. China also stepped up monetary easing policies during the year through several interest rate cuts and a surprise devaluation of its currency. What is important to know about our team’s investment process is that we take a two- to three-year view of the world, which helps us avoid some of the short-term noise in the markets, looking across asset classes, currencies, geographies and sectors to identify good long-term ideas 1 wherever they may be. Going forward, we believe the following themes will likely prevail over the next two to three years: Low, but positive, global economic growth We believe that structural economic growth will remain subdued on a global basis. However, regional differences could continue, with inventory and capital expenditure concerns acting as a potential drag on consumption-led U.S. growth, and the economic slowdown in China posing a potential risk to Europe’s cyclical recovery. Interest rates to remain low At the beginning of 2015, we acknowledged that interest rates could start to rise in the U.S. and the U.K., and that impacted our appetite for having duration in the portfolio. Given the modest economic outlook, we expect interest rates to remain low over the next few years even if rates do tentatively start to rise in the US and U.K. We believe the outstanding question is whether the monetary policies that are driving these changes will be effective in sustaining a healthy economic recovery. Low inflation to continue globally We expect low inflation to continue globally, exacerbated by ongoing competitive currency devaluation. We believe underlying inflation will remain low in the face of structural factors, such as debt overhang, and that implied inflation priced into forward interest rates will remain high. Select opportunities in risk assets We believe that select opportunities exist in risk assets, but current equity valuations must be navigated with care as earnings trends show differences between regions. Within fixed income, the search for yield appears to be distorting valuations, although U.S. corporate bonds look, in our view, more fairly priced. Higher levels of market volatility to persist Volatility has risen in 2015, but we believe that divergent economic policy globally, as well as non-market forces such as political interference, could underpin persistently higher levels of absolute volatility over the coming years. Given this two- to three-year outlook of the market, in the shorter-term we believe that 2016 could potentially bring with it some significant changes across financial markets. The beginning of a rate-tightening cycle could lead to a very different landscape for investing, as compared to the past few years which were defined by very loose monetary policy. This is important for a multi-asset portfolio like ours. For example, if interest rates rise, bonds may not provide the diversification 2 investors need. Another general theme, which extends through 2016 and beyond, is the use of different policy tools around the world. Ongoing competitive currency devaluation is a theme that may dominate across Asia in particular as economies fight for their share of global trade. In this environment, taking views on individual countries rather than broad-based regions makes sense as individual countries are responding to global economic pressures in very different ways, in our view. As policy and economic factors diverge across regions, this typically underpins higher asset class volatility than we have experienced over the past few years. Learn more about Invesco Global Targeted Returns Fund (MUTF: GLTAX ). Important information The opinions of the ideas expressed are those of Invesco Multi-Asset Team and are based on current market conditions which are subject to change without notice. These opinions may differ from those of other investment professionals. Diversification does not guarantee a profit or eliminate the risk of loss. Volatility measures the amount of fluctuation in the price of a security or portfolio. About risk There is a risk that the Federal Reserve Board (NYSE: FRB ) and central banks may raise the federal funds and equivalent foreign rates. This risk is heightened due to the potential “tapering” of the FRB’s quantitative easing program and other similar foreign central bank actions, which may expose fixed income investments to heightened volatility and reduced liquidity, particularly those with longer maturities. As a result, the value of the Fund’s investments and share price may decline. Changes in central bank policies could also increase shareholder redemptions, which may increase portfolio turnover and fund transaction costs. Derivatives may be more volatile and less liquid than traditional investments and are subject to market, interest rate, credit, leverage, counterparty and management risks. An investment in a derivative could lose more than the cash amount invested. These risks are greater for the Fund than most other funds because its investment strategy is implemented primarily through derivatives rather than direct investments in more traditional securities. The risks of investing in securities of foreign issuers, including emerging market issuers, can include fluctuations in foreign currencies, political and economic instability, and foreign taxation issues. The Fund is subject to the risks of the underlying funds. Market fluctuations may change the target weightings in the underlying funds and certain factors may cause the Fund to withdraw its investments therein at a disadvantageous time. Leverage created from borrowing or certain types of transactions or instruments may impair liquidity, cause positions to be liquidated at an unfavorable time, lose more than the amount invested, or increase volatility. The Fund is non-diversified and may experience greater volatility than a more diversified investment. Short sales may cause an investor to repurchase a security at a higher price, causing a loss. As there is no limit on how much the price of the security can increase, exposure to potential loss is unlimited. The Fund may invest in derivatives either directly or, in certain instances, indirectly through Invesco Cayman Commodity Fund VII Ltd., a wholly owned subsidiary of the Fund organized under the laws of the Cayman Islands (Subsidiary). Because the Subsidiary is not registered under the Investment Company Act of 1940, as amended (1940 Act), the Fund, as the sole investor in the Subsidiary, will not have the protections offered to investors in U.S. registered investment companies. Commodities may subject an investor to greater volatility than traditional securities such as stocks and bonds and can fluctuate significantly based on weather, political, tax, and other regulatory and market developments. Debt securities are affected by changing interest rates and changes in their effective maturities and credit quality. Underlying investments may appreciate or decrease significantly in value over short periods of time and cause share values to experience significant volatility over short periods of time. The Fund is subject to certain other risks. Please see the current prospectus for more information regarding the risks associated with an investment in the Fund. Before investing, carefully read the prospectus and/or summary prospectus and carefully consider the investment objectives, risks, charges and expenses. For this and more complete information about the products, visit invesco.com/fundprospectus for a prospectus/summary prospectus. The information provided is for educational purposes only and does not constitute a recommendation of the suitability of any investment strategy for a particular investor. Invesco does not provide tax advice. The tax information contained herein is general and is not exhaustive by nature. Federal and state tax laws are complex and constantly changing. Investors should always consult their own legal or tax professional for information concerning their individual situation. The opinions expressed are those of the authors, are based on current market conditions and are subject to change without notice. These opinions may differ from those of other Invesco investment professionals. NOT FDIC INSURED MAY LOSE VALUE NO BANK GUARANTEE All data provided by Invesco unless otherwise noted. Invesco Distributors, Inc. is the U.S. distributor for Invesco Ltd.’s retail products and collective trust funds. Invesco Advisers, Inc. and other affiliated investment advisers mentioned provide investment advisory services and do not sell securities. Invesco Unit Investment Trusts are distributed by the sponsor, Invesco Capital Markets, Inc., and broker-dealers including Invesco Distributors, Inc. PowerShares® is a registered trademark of Invesco PowerShares Capital Management LLC (Invesco PowerShares). Each entity is an indirect, wholly owned subsidiary of Invesco Ltd. ©2015 Invesco Ltd. All rights reserved. Identifying ideas for a low-growth, low-rate environment by Invesco Blog

The iShares MSCI France ETF: An Exceptional Fund

France has a diversified advanced economy. France has at least one world class competitor in almost every sector. The fund is comprehensive, balancing individual large caps with combined less weighted mid-caps. It simply cannot be helped. France has a certain ‘ambience’. Think of France and Gustave Eiffel’s ‘ Tour Eiffel’ immediately comes to mind. The imagination strolls around Champ de Mars or perhaps Champs-Élysées gloriously crowned by the Arc de Triomphe de l’Étoile . The mind’s eye bicycles along country roads winding along endless pastures, or through the narrow rue des villes médiévales . Then, of course, French epicure , le pain , la pâtisserie , le vin , le fromage and of course, le champagne . Lastly, where would we be without the fashion innovations originating from the very heart of France: Paris! Rarely does one think of France along with machinery, aircraft, electronics, high speed railways or industrial centers. However, France is one of the world’s leading advanced economies. Needless to say, agriculture is a large part of the French economy as are luxury goods, tourism and ‘specialty foods’. So then, is France in your future? Well, if you simply can’t get away for a few months for a leisurely, casual tour of France, perhaps you can start saving for a family excursion some time in the future! There aren’t too many ways to invest with an ‘all France ETF’, however. The best available way is found in BlackRock’s (NYSE: BLK ) portfolio of single country ETFs, namely, the iShares MSCI France ETF (NYSEARCA: EWQ ) . (click to enlarge) According to BlackRock, the fund is composed of “… large and mid-sized companies in France …” with exposure to “…85% of the French stock market…” The pie chart demonstrates the fund’s sector allocation. The table directly below the chart defines the MSCI (NYSE: MSCI ) France Index allocation. It’s clear that the fund and index are essentially allocated the same way. Both fund and index have the same number of holdings, with the exception of a small fund allocation in Euro or U.S. Dollar cash. The fund weights individual companies differently. For example, the index weights L’Air Liquide SA ( OTCPK:AIQUF ) slightly more than Danone (OTC: OTCQX:GPDNF ) and Societe Generale (OTC: OTCPK:SCGLF ) over Schneider Electric ( OTCPK:SBGSY ) . Data from BlackRock Financials 18.36% Industrials 18.28% Consumer Discretionary 17.43% Health Care 10.62% Consumer Staples 10.59% Energy 9.08% Information Technology 4.37% Materials 4.36% Utilities 3.67% Telecom Services 3.24% Data from Reuters, Yahoo Finance and multiple sources The heaviest weighting in the financial sector is BNP Paribas ( OTCQX:BNPQY ) , France’s largest domestic financial services company which extends throughout Belgium, France, Italy and Luxembourg. Its international services extends to 75 countries, globally. The distribution in this sector ‘ladders’ down without having any one company dominate. Further, the sector is diversified in insurance, investment banking and commercial real estate. There are also included a number of holdings of less than 1%; all such holdings total 3.21% of the sector. These include four REITS, insurance and reinsurance as well as two interesting investment companies. Wendel Investissement (OTC: OTCPK:WNDLF ) may best be described as an ‘activist investment company’, taking large majority ownerships in listed or unlisted companies along with activist board management. Eurazeo ( OTC:EUZOF ) is the merged Eurafrance and Azeo . It is essentially a diversified venture capital fund. Financials 18.41% Fund Weight Ticker Market Cap (In USD Billions) Yield Payout Ratio 5 Year Sales Growth Price/ Earnings Primary Business BNP Paribas 5.083% BNPQY $72.503 2.76% 26.42 -3.36% 9.46 Bank services in Europe; retail personal finance, asset management, corporate finance; International AXA 4.227% OTCQX:AXAHY $67.20 3.88% 48.52 -0.74% 12.89 Insurance, life, property, casualty, asset management and banking; International Societe Generale 2.8165% SCGLF $38.116 2.73% 28.00 -5.06% 10.04 Retail, corporate and investment banking services; insurance, vehicle leasing; asset clearing, asset management; International Unibail Rodamco 2.033% OTC:UNBLF $24.779 4.11% 42.66 2.93% 11.56 REIT: Commercial real estate, development, construction and management; Shopping Centers, Convention; International Credit Agricole 1.040% OTCPK:CRARF $31.623 3.14% 28.34 -5.33% 9.25 Insurance and international retail banking services; corporate banking services; International Averages 3.04% $46.84 3.32% 34.788 -2.31% 10.64 Data from Reuters, Yahoo Finance and multiple sources Financial holdings less than 1% accounting for 3.2109% of Financials WENDEL 0.2785% KLEPIERRE REIT SA ( OTC:KLPEF ) 0.8122% EURAZEO SA 0.2204% SCOR SE 0.4904% FONCIERE DES REGIONS REIT SA ( OTC:GSEFF ) 0.2174% NATIXIS SA ( OTCPK:NTXFF ) 0.4648% ICADE REIT SA ( OTC:CDMGF ) 0.1936% GECINA ( OTC:GECFF ) 0.3478% CNP ASSURANCES ( OTC:CNPAF ) 0.1858% Data from Reuters, Yahoo Finance and multiple sources Industrials are also ‘well scaled’, starting with aerospace giant Airbus ( OTCPK:EADSF ) ( OTCPK:EADSY ) at 3.322%. The heavier weighted holdings include engineering and design firms, another aerospace company, Safran ( OTCPK:SAFRY ) and Schneider Electric specializing in energy application design and management. The sector includes 11 holdings of less than 1% each, totaling 4.1877%. Some of the more interesting companies include Bouygues SA ( OTCPK:BOUYY ) , specializing in media and telecom infrastructure construction and management; rail transportation specialist Alstom SA ( OTCPK:ALSMY ) and lastly, the famous maker of the most familiar ball point pen ever, SOCIETE BIC . Industrials 18.14% Fund Weight Ticker Market Cap (In USD Billions) Yield Payout Ratio 5 Year Sales Growth Price/ Earnings Primary Business AirBus 3.322% EADSF $54.482 1.89% 34.02 7.23% 17.67 Premier aerospace commercial and defense; space launch vehicles and satellites (fmr: EADS NV) Schneider Electric 2.72% SBGSY $35.213 3.48% *42.91 9.57% 18.38 Energy management, automation, infrastructure, distribution, building automation and security, data centers Vinci 2.4915% OTCPK:VCISY $28.246 3.04% 46.57 4.47% 16.64 Engineering, design and construction, urban development, buildings, water, energy, and communications services Safran 1.820% SAFRY $29.269 1.82% *10.65 7.02% NA Aerospace, propulsion systems, solid fuel boosters, aircraft components, aircraft engines Compagnie de Saint-Gobain 1.709% OTCPK:CODYY $24.287 3.13% 90.14 1.67% 29.11 Materials and packaging; high-performance ceramics, plastics, abrasives; gypsum, piping; bottles and jars LeGrand 1.257% OTC:LGRDY $15.50 2.06 *46.53 4.69% **26.26 Electrical engineering and equipment manufacturing including data information networks Averages 2.22% $31.17 2.22% 45.137 5.78% 21.612 *percent of operating cash flow **trailing Data from Reuters, Yahoo and multiple sources Industrial holdings less than 1%, accounting for 4.1877% of Industrials ZODIAC AEROSPACE (OTC: OTC:ZODFF ) 0.4311% THALES SA ( OTCPK:THLEF ) 0.6457% SOCIETE BIC 0.3854% BOUYGUES SA 0.6201% EDENRED ( OTCPK:EDNMY ) 0.3333% ALSTOM SA 0.54% REXEL SA ( OTCPK:RXEEY ) 0.3322% GROUPE EUROTUNNEL ( OTCPK:GRPTY ) 0.481% BOLLORE SA ( OTC:BOLRF ) 0.3156% BUREAU VERITAS REGISTRE INTERNATIONAL ( OTC:BVRDF ) 0.4501% AEROPORTS DE PARIS ( OTC:AEOXF ) 0.2832% Data from Reuters, Yahoo Finance and multiple sources France is the home of many of the most well-known consumer discretionary brand names such as Moet Hennessy Louis Vuitton ( OTCPK:LVMHF ) or Kering ( OTC:PPRUF ) . The lesser weightings are no less “brand impressive”, such as Christian Dior (OTC: OTC:CHDRF ) . The interesting holdings include SODEXO SA ( OTC:SDXOF ) , providing ‘on-site’ services from housekeeping to prisoner rehab and anything in between; Ses Global SA ( OTCPK:SGBAF ), a Luxembourg based satellite communication and broadcasting service; and international media company Lagardere ( OTCPK:LGDDF ) . Consumer Discretionary 17.6851% Fund Weight Ticker Market Cap (In USD Billions) Yield Payout Ratio 5 Year Sales Growth Price/ Earnings Primary Business LVMH Moet Hennessy Louis Vuitton 3.732% LVMHF $83.55 2.18% 17.14 12.43% 13.43 The brand name which speaks luxury. Champagne, cognac, fragrances, cosmetics, accessories, under a host of brand names Vivendi 2.025% OTCPK:VIVEF $28.95 10.14% *180.07 -17.95% **7.07 Media through subsidiaries Canal+, Universal Music, Vivendi Village Renault SA 1.553% OTC:RNSDF $29.65 2.08% ***20.54 4.02% 10.04 Auto, light truck manufacturer; financing, commercial services under Renault, Renault Samsung, Dacia Michelin 1.486% OTCPK:MGDDF $18.328 2.77% 41.88 5.72% 15.45 The brand name that speaks tires of every type as well as its coveted restaurant and hotel guides Kering 1.073% PPRUF $21.89 2.50% 40.40 -5.87% 22.25 Luxury goods manufacturer and retailer; apparel, accessories, fragrances, cosmetics Publicis Groupe 1.006% OTC:PBCBF $14.347 1.99% 32.25 9.91% 16.56 Communications platform management services: Digitas, Razorfish, and social network platforms Valeo 0.9636% OTCPK:VLEEY $11.885 1.60% ***26.86 11.16% 16.91 Auto replacements parts, driver assist systems, powertrains, comfort and convenience, lighting systems Averages 1.69% $29.80 3.32% 51.306 19.42% 14.53 *percent of operating cash flow **trailing; ***percent of EPS Data from Reuters, Yahoo Finance and multiple sources Consumer Discretionary holdings less than 1%, accounting for 5.846% of Consumer Discretionary holdings CHRISTIAN DIOR 0.8194% PEUGEOT SA ( OTCPK:PEUGF ) 0.6432% SODEXO SA 0.7723% EUTELSAT COMMUNICATIONS ( OTCPK:ETCMY ) 0.4267% SES SA 0.7717% NUMERICABLE-SFR ( OTCPK:NUMCF ) SA 0.3741% HERMES INTERNATIONAL ( OTCPK:HESAY ) 0.7692% LAGARDERE 0.2835% ACCOR SA ( OTCPK:ACRFF ) 0.7552% JC DECAUX SA ( OTCPK:JCDXF ) 0.2307% Data from Reuters, Yahoo Finance and multiple sources The main holdings of the Consumer Staple Sector seem to lean towards consumer discretionary, most notably in the inclusion of L’Oréal ( OTCPK:LRLCY ) at 3.589% of the fund. To be sure, it’s a global, well founded corporation whose primary business is the development, marketing and distribution of cosmetics which seems to put it in competition with the likes of Louis Vuitton held in the consumer discretionary sector. Similarly, Pernod Ricard ( OTCPK:PDRDY ) at 1.964% manufactures higher end distilled spirits. Casino Guichard Perrachon (OTC: OTC:CGUIF ) is a retail chain distributor, supermarkets, hypermarkets, discount and convenience stores; what one would consider a consumer staples company; and lastly, Remy Cointreau SA ( OTCPK:REMYY ) , also a manufacturer of wines and spirits. It seems that the difference between discretionary and staple products is a gray area. C’est la vie. Consumer Staples 10.5318% Fund Weight Ticker Market Cap (In USD Billions) Yield Payout Ratio 5 Year Sales Growth Price/ Earnings Primary Business Loreal 3.589% LRLCY $96.26 1.67% ***52.43 5.22% 30.36 R&D, marketing and distribution, ‘mass-market retail’ Danone 3.255% GPDNF $44.386 2.40% 112.94 7.13% 40.84 Holding company for Danone Group, Dairy, Yogurt, life stage nutrition; nutrition enhanced water Pernod Ricard 1.964% PDRDY $29.84 1.72% 55.49 3.86% 32.11 Wines and spirits under brands Absolut, Ricard Pastis, Chivas, Glenlivet, Beefeater; 16 in all; owns 5660 ha of vineyards Carrefour 1.332% OTCPK:CRRFY $22.08 2.50% 53.22 -2.53% 20.97 Hypermarkets, supermarkets, discount and convenience, cash & carry stores and e-commerce Averages 2.54% $48.14 2.07% 68.52 3.42% 31.07 ***percent of EPS Data from Reuters, Yahoo! and multiple sources Consumer Staple holdings less than 1%, accounting for 1.592% of Consumer Staple holdings Casino Guichard Perrachon 0.246% Remy Cointreau SA 0.1435% Data from Reuters, Yahoo Finance and multiple sources The Health Care holdings are dominated by the world renowned pharmaceutical Sanofi (NYSE: SNY ) at 8.33% of the fund’s 10.4613% combined Health Care holdings. Sanofi is what one might expect; however, the other holding is a bit more interesting. Essilor International ( OTC:ESLOF ) is a developer and manufacturer of Ophthalmology and Optometry medical equipment as well as corrective lenses. Health Care 10.4613% Fund Weight Ticker Market Cap (In USD Billions) Yield Payout Ratio 5 Year Sales Growth Price/ Earnings Primary Business Sanofi 8.330% SNY $122.23 3.71% 75.73 1.78% 21.65 R&D, manufacture and marketing of vaccines, pharmaceuticals, animal health Essilor International 2.132% ESLOF $27.138 0.87% 34.98 11.65% 40.61 Ophthalmology and Optometry medical equipment development through manufacturing Averages 5.23% $74.68 2.29% 55.36 6.72% 31.13 So far, in each of the above sectors, most of the holdings were greater than 1 percent. In the remaining sectors, it is quite the opposite, hence all are included. For example, the energy sector is dominated by the global energy giant Total (NYSE: TOT ) at 8.536% of the total 8.974% of that sector. The remaining 0.438% is weighted by Technip ( OTCQX:TKPPY ), providing project management, consultation and construction in the energy industry. Energy 8.974% Fund Weight Ticker Market Cap (In USD Billions) Yield Payout Ratio 5 Year Sales Growth Price/ Earnings Primary Business Total 8.536% TOT $115.910 5.83% 195.03 6.33% 32.27 Wellhead to final point of sale hydrocarbons, refined petroleum oils, gases and chemicals Technip 0.438% TKPPY $5.844 4.24 185.6 9.31% 337.73 Engineering, construction and management for on/off shore energy projects Averages 4.49% $60.88 5.04 190.315% 7.82% 185.00 Information Technology is pretty well laddered with the major French IT companies, Cap Gemini ( OTCPK:CAPMF ) and Alcatel-Lucent (NYSE: ALU ) . Just one note: Ingenico Group ( OTC:INGIF ) is formerly Compagnie Industrielle et Financiere d’Ingenierie Ingenico SA ; the company provides secure global digital-mobile-internet transaction solutions including software and hardware. In October, it was announced that Ingenico was collaborating with Intel (NASDAQ: INTC ) in the field of secure retail transaction solutions. IT 4.5651% Fund Weight Ticker Market Cap (In USD Billions) Yield Payout Ratio 5 Year Sales Growth Price/ Earnings Primary Business Cap Gemini 1.241% CAPMF $16.066 1.40% 31.16 4.78% 23.35 IT consulting and professional staffing Alcatel Lucent 0.929% ALU $11.444 0.00 0.00 -2.35% 15.46 (est) Cloud, ultra and Broadband network equipment and services Dassault Systems 0.8425% OTCPK:DASTY $20.732 0.58% 29.22 12.89% 50.99 Software application solutions, services; CAD and design software Atos 0.5964% OTCPK:AEXAF $8.684 1.04% ***25.89 12.04 25.17 IT management, services and consulting CIE Industrielle Financiere (Ingenico) 0.5761% INGIF $7.716 0.84 ***23.86 18.06% 33.24 Secure financial transaction systems STMicroelectronics 0.3808% STM $7.247 5.43% 180.69 27.23% 44.50 Semiconductor manufacturer Averages 0.76% $11.98 1.50% 48.47 12.01% 32.118 ***percent of EPS Data from Reuters, Yahoo! and multiple sources The Materials sector has an average weighting of just over 1% and all the better. Over half of the weighting is in the mining and minerals sector through ArcelorMittal (NYSE: MT ) and Imerys ( OTC:IMYSF ) both under pressure from the collapse in commodity prices. Materials 4.1634% Fund Weight Ticker Market Cap (In USD Billions) Yield Payout Ratio 5 Year Sales Growth Price/ Earnings Primary Business L’Air Liquide SA 3.208% AIQUF $39.186 2.42% 51.45 5.10% 20.88 Gasses technology for industry such as beverage, food, pharmaceuticals Arkema 0.3958% OTC:ARKAF $5.31 2.76% 45.17 6.02% 18.73 Industrial chemical packaging, automotive, electronics, edibles and pharmaceuticals Arcelormittal 0.3596% MT $7.143 4.35% NA 5.38% 17.73 (NYSE: AVG ) Mining and steel manufacturing in Europe, Brazil, Africa and trade regions NAFTA and CIS Imerys 0.1998% IMYSF $5.386 2.62% ***45.46 5.86 17.19 Minerals extraction and processing for the production of porcelain, ceramics, tiling, bricks, pigments, paper, graphite and others Averages 1.04% $14.26 3.04% 47.36 5.59% 18.64 ***percent of EPS Data from Reuters, Yahoo Finance and multiple sources The average Utility holding is less than 1% but the yield is a noticeable 5.60%, albeit with a greater than 100% average payout ratio . Engie ( OTCPK:ENGIY ) and Veolia Environnement ( OTCPK:VEOEY ) are international and manage vital service utilities: water, sewage and electric. Veolia has offices in the Americas, Middle East, North Africa and Asia. Utilities 3.6889% Fund Weight Ticker Market Cap (In USD Billions) Yield Payout Ratio 5 Year Sales Growth Price/ Earnings Primary Business Engie 2.0591% ENGIY $42.00 6.27% 259.55 -1.34% 45.80 Natural gas and electricity; Europe, Americas, U.K., Turkey, Middle East, Asia and Africa Veolia Environnement 0.8772% VEOEY $13.289 3.17 99.60 -10.37% 31.97 Water treatment, distribution and recycling; wastewater, sanitations services; International Suez Environnement 0.4642% OTCPK:SZEVY $10.41 3.69% 158.54 3.10% 42.87 Water management, , distribution and recycling; wastewater collection/recovery EDF 0.2884% $26.78 9.27 ***39.31 4.26% 9.17 Electric utility; generating with nuclear, geothermal, hydro and other renewables Averages 0.92% $23.12 5.60% 139.25 -1.09% 32.45 ***percent of EPS Data from Reuters, Yahoo Finance and multiple sources The last sector, Telecom Services, is dominated by Orange (NYSE: ORAN ) , formally France Telecom . Just last week it was announced that Orange was ‘in talks’ to purchase Bouygues a diversified telecom and media company, including engineering, construction and management services mainly for public works projects. Telecom Services 3.2402% Fund Weight Ticker Market Cap (In USD Billions) Yield Payout Ratio 5 Year Sales Growth Price/ Earnings Primary Business Orange 2.7557% ORAN $48.106 4.02% 110.24 -2.53% 43.34 Multi-platform telecom services; internet, mobile, fixed line; submarine/international cable maintenance Iliad 0.4845% OTC:ILIAF $13.170 0.19% 7.57 16.35% 40.73 Telecom holding company with over 14 subsidiaries; multiplatform services Averages 1.62% $30.64 2.11% 58.91 6.91% 42.035 Data from Reuters, Yahoo Finance and multiple sources As for the fund itself, it first listed on March 12, 1996, hence it is well established and now holds $399,541,982 in assets. The expense ratio is 0.48% and its current share price is at a premium to NAV of 0.44%. The fund is liquid, with a 20 average daily volume of about 137,500 share. The fund moves pretty much with the market, having a beta of 1.09, although its standard deviation from its average is nearly 16%, meaning it trades in a range of ±$4.00 around its 3-year average. One last word and it’s important. There’s a bit of currency risk as the ECB continues to weaken the Euro in order to stimulate the EU economy as a whole. However, this is a ‘two sided coin’. On one hand, true, distributions may decline slightly through currency translation should the Euro weaken significantly from its current $1.08 USD per Euro. On the other side of the coin is that French exports of goods and services become less expensive for the importers. Hence, many of those French big caps with global reach will have a price advantage, not to mention other advantages; for example, luxury items, and of course, French Champagnes. Hence, the investor should be aware of the currency risk; however, over the very long term, any near-term weakening of the Euro may end up being an exceptional advantage. Editor’s Note: This article discusses one or more securities that do not trade on a major U.S. exchange. Please be aware of the risks associated with these stocks.

Will The Supreme Court Alter Your Utility Investment Strategy?

An obscure legal case could impact several electric utilities in states where wholesale power pricing is controlled by Regional Transmission Organizations, such as PJM Interconnect. Demand Response technology is at the heart of the issue. Is the Federal Government overreaching into the territory of state’s rights? The US Supreme Court SCOTUS could be intruding into your electric utility investment strategy. In an obscure case entitled Federal Energy Regulatory Commission v. Electric Power Supply Association (FERC v EPSA), SCOTUS will settle a long standing dispute between the FERC and power producers. At the heart of the conflict is the implementation and impact of Residential Demand Response (DR) technology. Pricing for electricity and hence the profitability of several electric utilities hang in the balance. Demand Response is the ability of specific electric appliances to turn off during times of high cost power, also known as “smart” appliances. Stated more clearly: Conservation implies whether to consume energy; Efficiency deals with how to consume energy; Demand Response concerns when to consume energy. Oilprice.com offers an interesting recap of the issue: Demand-responders argue that a megawatt saved is financially equal to a megawatt produced by a power generator. The power generators who comprise EPSA recognize that DR will hurt them, reducing both power prices and their profitability, to the benefit of consumers. Adding DR to a power market is the competitive equivalent of adding more generators. Either way, added competition lowers prices. The issue before the court is whether the FERC can compel regional power producers to pay consumers who reduce their use of power at peak times and if so, at what price. An interesting analogy could be the government program to pay farmers for not planting crops. In this case, power companies would pay consumers not to use electricity from the grid during times of peak demand. Daily peak demand varies based on location. For example, in Arizona where air conditioning is a large portion of demand, Arizona Public Service bills customers the following schedule: The plans billed on an off-peak and on-peak basis, with a super peak period in the summer billing months of June – August. Off-peak hours are weekdays from 7 pm to noon and all day Saturday and Sunday, as well as 6 major holidays; on-peak hours noon – 7 pm weekdays are billed at a higher rate; super-peak hours (3-6 pm weekdays during June – August) are billed at the most expensive cost per kWh. Save money when you use more energy on weekends and weekday mornings before noon or evenings after 7 pm. From their rate card , APS off-peak hours are billed at $0.05517 per kWh while on-peak rates vary from $0.19847 in April and $0.24477 in May, with super-peak costing $0.46517 in June. FERC Order 745 implements a program where power producers pay retail customers the going purchase rate for power not consumed, if the demand response is economical and helps balance the energy load on the Grid. The power producers contend this overcompensates as the variable cost to generate electricity is less than the retail price. In addition, the power producers claim the Order is an over-reach by the FERC as retail power rates are set by individual state utility commission boards, some of which are elected by the general population. In May 2014, the DC Federal District Court of Appeals ruled in favor of the power producers, resulting in FERC’s appeal to the SCOTUS. The Circuit threw out FERC Order 745’s compensation calculation and found that FERC has no jurisdiction over Demand Response, placing jurisdiction back on the states. The amount of money Demand Response could represent are not insignificant. The table below is an estimate from GTM Research for the forecast of the U.S. demand response market – with and without FERC Order 745. Source In a review of Con Ed (NYSE: ED ), I discussed the implementation of the “Clean Virtual Power Plant” where ED is developing a network of solar panels and electricity storage to supply the Grid with power when the solar panels are ineffective. If this becomes a viable business model in connection with higher Demand Response expansion and the FERC Order 745 of paying the highest prices for DR, wholesale power prices controlled by Regional Transmission Organizations, such as PJM in the Mid-Atlantic and eastern Midwest, could alter profitability for power producers. Which electric utilities could affected? GTM Research offers the following map of the highest kW replacement from DR, by Regional Transmission Organization: (click to enlarge) As shown, 68% of the Demand Response reduction in MW demand comes from areas under the jurisdiction of PJM and MISO, and includes a large swath of 31 states. Utilities with power generation in these states affected include Exelon (NYSE: EXC ), FirstEnergy (NYSE: FE ), American Electric Power (NYSE: AEP ), Dominion Resources (NYSE: D ), and Duke Energy (NYSE: DUK ). More information can be found in an interesting article published by utilitydive.com. Investors should keep an eye out for the ruling by SCOTUS concerning FERC Order 745. The impact could affect the profitability of many utilities selling wholesale power in various RTO jurisdictions. Author’s Note: Please review disclosure in Author’s profile.